How Paying Only Minimum Payments May Take Its Toll

This personal bankruptcy story was posted on the internet as comments in a bankruptcy discussion: “I have just lost my job. I was there for 10 years. I have lots of purchases on my credit card from August-December. I have never missed payments on any credit cards. I cannot afford the minimums much longer, and they are taking their toll. They are over $1000 per month. Is there anything I can do to minimize the risk at this point? ”

The debtor in this personal bankruptcy illustration has just lost her job and is now stuck with making payments on her credit card she can no longer afford. The minimum payments have taken their toll.

Up until this past year, when you started making minimum payments on your credit card for a period of time, the credit card company raised your interest rate and shortened your payment due date. The Obama Administration changed all of that this past year by requiring credit card institutions to give a 45 day notice before they can make any new changes. Although the changes help some, they are a pittance of what really needs to be done in re-regulating the banking system.

In 1978, the Supreme Court made a ruling that would change the face of how banks reasonably dealt with credit card interest. The Marquette Bank opinion permitted national banks to export interest rates on consumer loans from the state where credit decisions were made to borrowers nationwide. Federal rules already existing required that before banks could set up operations outside their home state, a formal invitation had to be issued by the legislature of the state they wanted to enter.

It wasn’t long before states like South Dakota and Delaware took full advantage of the new jobs the banks offered for coming to their states. South Dakota’s legislature first passed laws in 1980, effectively eliminating the existing usury laws so Citibank could move their credit card operating headquarters to the state. Citibank eventually delivered 3,000 high paying jobs to South Dakota, and was rewarded with an operations base whereby they could ignore all the other state’s maximum usury rates and still do business.

In addition, the political atmosphere was such that in 1980, Washington began a move led by the Office of the Comptroller of the Currency to peg the rate of interest at a certain number of points above the federal reserve discount rate. Specially chartered organizations like small loan companies and installment plan sellers would have their own rules. That means the usury laws in most states do not have enough teeth to regulate credit card debt today. As a result in many cases, about the only way a person can relieve exorbitant credit card debt is through filing for bankruptcy protection.

In other words, the debtor in the illustration has been paying $1000 a month minimum payment. If her minimum payment is 2% of the unpaid balance, a common minimum rate, the debtor owes $50,000 in credit card debt. If she continued to make the monthly minimum for the rest of her life and the credit card company raised her interest rate to 24% APR, the federal maximum, she would never pay off the loan and would still owe the company the $50,000 at the end of her life. Under the 1980 rule changes, credit card companies can charge higher than the 24% APR, and when they do, you can pay the minimum the rest of your life and owe even more than the principal amount you started with. Is there any wonder why the debtor in our illustration is considering bankruptcy protection?

Maybe like so many other Americans you felt you had to use your credit cards in order to make ends meet and until times get better. Don’t allow the minimum payments to take their toll on you. If you are bankrupt from credit card debt, the only thing you can do to minimize your risk a this point is to file for bankruptcy protection. Common sense indicates you will need a bankruptcy lawyer in order to help you understand how complex bankruptcy laws may apply in your particular situation.

If you determine you are in need of relief from the stress associated with debt and you live in or around the metropolitan areas of West Palm Beach or Boca Raton, Florida, contact us here today at .We will help you find a bankruptcy attorney in your area that will help you with any questions you may have on bankruptcy law.

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